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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
(as amended December 1, 1998)
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 17, 1998
AMSCAN HOLDINGS, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 000-21827 13-3911462
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation or Organization) Identification No.)
80 Grasslands Road
Elmsford, New York 10523
(Address of Principal Executive Offices)
(914) 345-2020
(Registrant's telephone number, including area code)
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1
<PAGE>
AMSCAN HOLDINGS, INC.
Item 7 is hereby amended as follows:
Item 7. Financial Statements and Exhibits
a) Financial statements of businesses acquired
The following historical financial statements are included in this
report:
1. Audited Combined Financial Statements of Anagram International,
Inc. and Subsidiaries, Anagram Espana S.L. and Anagram
International Japan, Ltd. (collectively "Anagram") for the year
ended December 31, 1997, with Independent Public Accountants'
Report Thereon.
2. Unaudited Combined Financial Statements of Anagram for the six
months ended June 30, 1998 and 1997.
b) Pro forma financial information
The following tables set forth certain unaudited pro forma consolidated
financial information of Amscan Holdings, Inc. ("Amscan" or the "Company") and
Anagram for the year ended December 31, 1997 and at and for the six months ended
June 30, 1998, after giving effect to the acquisition (the "Acquisition") of all
the capital stock of Anagram pursuant to a Stock Purchase Agreement dated August
6, 1998. The pro forma consolidated financial information gives effect to the
Acquisition, which was accounted for by the purchase method of accounting, as if
the Acquisition had occurred at January 1, 1997 for income statement data and as
if it had occurred at June 30, 1998, for balance sheet data. The unaudited pro
forma adjustments are described in the accompanying notes. The unaudited pro
forma consolidated financial information does not purport to be indicative of
actual results that would have been achieved had the Acquisition been
consummated on the date or for the periods indicated and does not purport to
indicate balance sheet data or results of operations as of any future date or
for any future period. The unaudited pro forma consolidated financial
information should be read in conjunction with the historical consolidated
financial statements of the Company and related notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, and
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and the
historical combined financial statements of Anagram included in Item 7. a)
above.
The unaudited pro forma consolidated financial information is based on
certain assumptions and estimates which are subject to change. No changes in
operating revenues or expenses have been made to reflect the results of any
modification to operations that might have been made had the Acquisition been
consummated on the date or for the periods indicated.
2
<PAGE>
AMSCAN HOLDINGS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan Anagram Pro Forma Pro Forma
Historical Historical Adjustments Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 19,833 $ 91 $(17,800)(b) $ 1,324
(800)(d)
Accounts receivable, net of allowances ...................... 42,655 8,117 (1,000)(f) 49,772
Inventories.................................................. 46,483 9,237 (500)(f) 55,220
Assets held for disposal..................................... 2,776 2,776
Prepaid expenses and other current assets..................... 8,281 3,242 (163)(f) 11,360
--------- --------- --------
Total current assets..................................... 120,028 20,687 120,452
Property, plant and equipment, net.............................. 33,668 13,896 3,125 (a) 59,489
8,800 (f)
Intangible assets, net.......................................... 8,561 58,331 (f) 66,892
Other assets, net ............................................. 7,759 878 800 (d) 9,963
(410)(f)
936 (f)
--------- --------- --------
Total assets............................................. $170,016 $35,461 $256,796
========= ========= ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Notes payable................................................ $ 167 $ 20,000 (b) $ 20,167
Due to stockholders.......................................... 158 158
Accounts payable............................................. 5,838 $3,167 9,005
Accrued expenses............................................. 10,234 5,609 4,370 (f) 20,145
(68)(e)
Current portion of long-term obligations..................... 4,401 3,187 (2,788)(c) 4,800
--------- -------- --------
Total current liabilities................................. 20,798 11,963 54,275
Long-term obligations, excluding current portion................ 231,392 15,043 40,000 (b) 272,369
(12,972)(c)
(1,094)(e)
Deferred income tax liabilities................................. 7,342 (567)(f) 6,775
Other........................................................... 3,614 68 3,682
--------- -------- --------
Total liabilities.......................................... 263,146 27,074 337,101
Stockholders' (deficit) equity:
Common Stock................................................. - 122 (122)(g) -
Additional paid-in capital................................... 181 3,287 12,825 (b) 13,006
1,162 (e)
(4,449)(g)
Unamortized restricted Common Stock award, net............... (705) (705)
Notes receivable from officers............................... (728) (728)
(Accumulated deficit) retained earnings....................... (90,611) 4,782 3,125 (a) (90,611)
(7,907)(g)
Accumulated other comprehensive (loss) income................ (1,267) 196 (196)(g) (1,267)
--------- -------- --------
Total stockholders' (deficit) equity....................... (93,130) 8,387 (80,305)
--------- -------- --------
Total liabilities and stockholders' (deficit) equity....... $170,016 $35,461 $256,796
========= ======== ========
</TABLE>
See accompanying notes to pro forma consolidated balance sheet.
3
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1998
(Dollars in thousands)
(Unaudited)
The pro forma financial data giving effect to the Acquisition has been
derived by the application of pro forma adjustments to the Company's historical
consolidated balance sheet as of June 30, 1998. The Acquisition has been
accounted for under the purchase method, and, accordingly, the Acquisition
consideration is allocated to the tangible and intangible assets acquired and
liabilities assumed based on their respective fair values at the date
of the transaction. Such allocations are based on studies and valuations which
have not yet been completed. Accordingly, the allocations and estimated lives
used in the pro forma financial data are preliminary and subject to change.
(a) To reflect the capitalization of purchased printing plates previously
expensed by Anagram, to conform Anagram's accounting policy to that
followed by the Company.
(b) To reflect the Company's financing of the Acquisition:
Additional borrowings of senior term debt ("Term Loan").......$40,000
Additional borrowings under the revolving credit
facility ("Revolving Credit Facility")...................... 20,000
Cash on-hand.................................................. 17,800
Issuance of 120 shares of Common Stock valued at $12,600
and issuance of 10 Company warrants valued at $225.......... 12,825
-------
Aggregate purchase price..................................$90,625
=======
(c) To reflect the payment of Anagram's historical debt in connection with
the Acquisition:
Current portion of long term obligations......................$ 2,788
Non-current portion of long term obligations.................. 12,972
-------
$15,760
=======
(d) To reflect debt issuance costs which will be deferred and amortized
over the life of the debt issued in connection with the Acquisition.
4
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (Continued)
June 30, 1998
(Dollars in thousands)
(Unaudited)
(e) To reflect the elimination of commissions and notes payable to a
Domestic International Sales Corporation ("DISC"), the assets of which
were contributed to Anagram by its former owner in connection with the
acquisition.
(f) To adjust the assets and liabilities of Anagram to their estimated
fair value and recognize other liabilities in connection with the
Acquisition:
Net assets acquired at June 30, 1998.....................$28,434
Increase property, plant and equipment to fair value..... 8,800
Decrease inventories to fair value....................... (500)
Decrease accounts receivable to fair value............... (1,000)
Decrease prepaid expenses and other current
assets to fair value................................ (163)
Decrease other assets to fair value...................... (410)
Recognize charges relating to the planned consolidation
of certain Anagram warehouse operations ............ (2,600)
Recognize losses on certain Anagram royalty agreements... (1,400)
Other.................................................... (370)
-------
Total adjustment to accrued expenses............... (4,370)
Recognize non-current deferred income tax assets......... 936
Recognize reduction in non-current deferred income
tax liabilities..................................... 567
Excess of aggregate purchase price over the
fair market value of net assets acquired
(principally goodwill).............................. 58,331
-------
Aggregate purchase price........................... $90,625
=======
(g) To eliminate Anagram's equity at June 30, 1998 in accordance with
purchase accounting.
5
<PAGE>
AMSCAN HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan Anagram Pro Forma Pro Forma
Historical Historical Adjustments Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Sales, net.................................................. $104,247 $31,946 $136,193
Cost of sales............................................... 67,012 17,867 $ 938 (a) 85,263
(554) (b)
---------- ---------- ----------
Gross profit............................................ 37,235 14,079 50,930
Operating expenses:
Selling expenses........................................ 7,159 4,849 12,008
General and administrative expenses..................... 9,771 4,662 (306) (b) 15,541
1,607 (c)
(125) (d)
(68) (e)
Art and development costs............................... 3,216 2,891 (1,125) (a) 4,982
Restructuring charges................................... 2,400 2,400
---------- ---------- ----------
Total operating expenses............................... 22,546 12,402 34,931
---------- ---------- ----------
Income from operations................................. 14,689 1,677 15,999
Interest expense, net....................................... 10,763 774 1,563 (f) 13,042
(58) (g)
Other (income) expenses, net................................ (59) 35 58 (g) 34
---------- ---------- ----------
Income before income taxes and minority interests........... 3,985 868 2,923
Income tax expense ......................................... 1,654 179 (620) (h) 1,213
Minority interests.......................................... 30 30
---------- ---------- ----------
Net income.............................................. $ 2,301 $ 689 $ 1,680
========== ========== ==========
</TABLE>
See accompanying notes to pro forma consolidated statement of operations.
6
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(Dollars in thousands)
(Unaudited)
The pro forma financial data giving effect to the Acquisition has been
derived by the application of pro forma adjustments to the Company's historical
consolidated statement of operations for the six months ended June 30, 1998. The
adjustments give effect to certain events that occurred in connection with the
Acquisition as if those events had occurred as of January 1, 1997. The
Acquisition has been accounted for under the purchase method, and, accordingly,
the operating results of Anagram are included in the Company's historical
consolidated financial statements from September 17, 1998, the date of
acquisition.
(a) To reflect the capitalization of purchased printing plates of $1,125
previously expensed as an art and development cost by Anagram and to
reflect the amortization of such costs of $938 as a component of
cost of sales, to conform Anagram's accounting policy to that followed
by the Company.
(b) To adjust depreciation expense to reflect estimated fair market values
and useful lives of assets acquired.
(c) To reflect $1,607 for amortization of intangible assets acquired
(principally goodwill) of $58,331 over estimated useful lives ranging
from 3 to 25 years.
(d) To eliminate above market compensation that will not recur as a result
of the amendment of an employment agreement with the former owner of
Anagram in connection with the Acquisition.
(e) To reflect the elimination of a non-recurring commissions expense
payable to a DISC dissolved in connection with the Acquisition.
(f) To adjust interest expense to reflect the following:
Interest and amortization expense related to the
historical debt paid in connection with the
Acquisition................................................. $ (723)
Interest expense on the Revolving Credit Facility
(assumed rate of 7.63%)..................................... 763
Interest expense on the Term Loan (assumed rate of 7.28%)..... 1,457
Amortization of deferred financing costs
(6 years) on new indebtedness .............................. 66
------
Total adjustment.............................................. $1,563
======
(g) To reclassify interest income to conform Anagram's financial statement
presentation with that of the Company.
(h) To adjust for income taxes at a statutory rate of 41.5% on earnings as
if Anagram International, Inc. had not been treated as a Subchapter S
Corporation during the period presented and for the tax effect of the
pro forma adjustments.
7
<PAGE>
AMSCAN HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Amscan Anagram Pro Forma Pro Forma
Historical Historical Adjustments Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Sales, net................................................ $209,931 $62,798 $272,729
Cost of sales............................................. 136,571 35,680 $1,121 (a) 172,044
(1,328) (b)
-------- ------- --------
Gross profit......................................... 73,360 27,118 100,685
Operating expenses:
Selling expenses..................................... 13,726 8,362 22,088
General and administrative expenses.................. 20,772 9,019 (616) (b) 31,610
3,213 (c)
(250) (d)
(528) (e)
Art and development costs............................ 5,282 5,196 (2,279) (a) 8,199
Non-recurring expenses in connection
with the Merger................................... 22,083 22,083
-------- ------- --------
Total operating expenses............................. 61,863 22,577 83,980
-------- ------- --------
Income from operations............................... 11,497 4,541 16,705
Interest expense, net..................................... 3,892 1,692 2,991 (f) 8,541
(34) (g)
Other (income) expense, net............................... (71) 125 34 (g) 88
-------- ------- --------
Income before income taxes and
minority interests................................... 7,676 2,724 8,076
Income tax expense........................................ 7,665 382 (220) (h) 7,827
Minority interests........................................ 193 193
-------- ------- --------
Net (loss) income.................................... $ (182) $ 2,342 $ 56
======== ======= ========
</TABLE>
See accompanying notes to pro forma consolidated statement of operations.
8
<PAGE>
AMSCAN HOLDINGS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(Dollars in thousands)
(Unaudited)
The pro forma financial data giving effect to the Acquisition has been
derived by the application of pro forma adjustments to the Company's historical
consolidated statement of operations for the year ended December 31, 1997. The
adjustments give effect to certain events that occurred in connection with the
Acquisition, as if those events had occurred as of January 1, 1997. The
Acquisition has been accounted for under the purchase method, and, accordingly,
the operating results of Anagram are included in the Company's historical
consolidated financial statements from September 17, 1998, the date of
acquisition.
(a) To reflect the capitalization of purchased printing plates of $2,279
previously expensed as an art and development cost by Anagram and to
reflect the amortization of such costs of $1,121 as a component of
cost of sales, to conform Anagram's accounting policy to that followed
by the Company.
(b) To adjust depreciation expense to reflect estimated fair market values
and useful lives of assets acquired.
(c) To reflect $3,213 for amortization of intangible assets acquired
(principally goodwill) of $58,331 over estimated useful lives ranging
from 3 to 25 years.
(d) To eliminate above market compensation that will not recur as a result
of the amendment of an employment agreement with the former owner of
Anagram in connection with the Acquisition.
(e) To reflect the elimination of a non-recurring commissions expense paid
to a DISC dissolved in connection with the Acquisition.
(f) To adjust interest expense to reflect the following:
Interest and amortization expense related to the
historical debt repaid in connection with the
Acquisition ............................................. $(1,579)
Interest expense on the Revolving Credit Facility
(assumed rate of 7.63%).................................. 1,525
Interest expense on the Term Loan (assumed rate
of 7.28%)................................................ 2,913
Amortization of deferred financing costs (6 years)
on new indebtedness ..................................... 132
--------
Total adjustment....................................... $ 2,991
========
(g) To reclassify interest income to conform Anagram's financial statement
presentation with that of the Company.
(h) To provide for income taxes at a statutory rate of 40.5% on earnings
as if Anagram International, Inc. had not been treated as a Subchapter
S Corporation during the period presented and for the tax effect of
the pro forma adjustments.
9
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Audited Combined Financial Statements:
Report of Independent Public Accountants............................ 11
Combined Balance Sheet as of December 31, 1997................. 12
Combined Statement of Operations For the Year
Ended December 31, 1997...................................... 13
Combined Statement of Shareholders' Equity For
the Year Ended December 31, 1997............................. 14
Combined Statement of Cash Flows For the Year
Ended December 31, 1997...................................... 15
Notes to Combined Financial Statements.......................... 16
Unaudited Combined Financial Statements:
Combined Balance Sheet as of June 30, 1998...................... 23
Combined Statements of Operations For the Six
Months Ended June 30, 1998 and 1997.......................... 24
Combined Statements of Cash Flows For the Six
Months Ended June 30, 1998 and 1997.......................... 25
Notes to Combined Financial Statements.......................... 26
10
<PAGE>
ANAGRAM INTERNATIONAL, INC. AND SUBSIDIARIES, ANAGRAM ESPANA S.L. AND
ANAGRAM INTERNATIONAL JAPAN, LTD.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Anagram International, Inc. and Subsidiaries, Anagram Espana S.L.
and Anagram International Japan, Ltd.:
We have audited the accompanying combined balance sheet of Anagram
International, Inc. (a Minnesota corporation) and Subsidiaries, Anagram Espana
S.L. (a Spanish corporation) and Anagram International Japan, Ltd. (a Japanese
corporation) as of December 31, 1997, and the related combined statements of
operations, shareholders' equity and cash flows for the year then ended. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based upon our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of Anagram
International, Inc. and Subsidiaries, Anagram Espana S.L. and Anagram
International Japan, Ltd., as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
October 2, 1998
11
<PAGE>
ANAGRAM INTERNATIONAL, INC. AND SUBSIDIARIES,
ANAGRAM ESPANA S.L. AND ANAGRAM INTERNATIONAL JAPAN, LTD.
COMBINED BALANCE SHEET
December 31, 1997
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 718,639
Trade accounts receivable, net of allowances of $1,707,913..... 9,478,128
Inventories.................................................... 7,845,440
Prepaid expenses............................................... 2,173,698
Other current assets........................................... 442,175
------------
Total current assets..................................... 20,658,080
Long-term notes receivable from customers, net.................... 441,816
Property, plant and equipment, net................................ 14,794,466
Other assets...................................................... 502,828
------------
$36,397,190
============
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Current maturities of long-term debt........................... $ 3,229,412
Accounts payable............................................... 3,893,215
Accrued expenses............................................... 2,730,029
Accrued royalties.............................................. 1,314,919
Accrued compensation and benefits.............................. 1,396,310
Accrued dividends payable...................................... 974,152
------------
Total current liabilities................................ 13,538,037
Long-term debt, net of current maturities......................... 12,346,514
Subordinated notes payable to related parties..................... 2,600,628
Other long-term liabilities....................................... 57,388
------------
Total liabilities........................................ 28,542,567
Commitments and contingencies (Notes 4 and 6)
Shareholders' equity:
Common stocks.................................................. 121,801
Additional paid-in capital..................................... 3,286,916
Cumulative translation adjustment.............................. (11,644)
Retained earnings.............................................. 4,457,550
-----------
Total shareholders' equity................................ 7,854,623
-----------
$36,397,190
===========
The accompanying notes are an integral part of this combined statement.
12
<PAGE>
ANAGRAM INTERNATIONAL, INC. AND SUBSIDIARIES,
ANAGRAM ESPANA S.L. AND ANAGRAM INTERNATIONAL JAPAN, LTD.
COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
Net sales....................................... $62,798,265
Cost of sales................................... 35,679,644
------------
Gross margin................................. 27,118,621
Operating expenses:
Selling expenses............................. 8,362,289
Art and development costs.................... 5,195,685
General and administrative expenses.......... 9,019,315
------------
Total operating expenses..................... 22,577,289
------------
Income from operations.......................... 4,541,332
Non-operating expenses:
Interest expense............................. 1,691,730
Other expense, net........................... 125,357
------------
Total non-operating expenses................. 1,817,087
------------
Income before income taxes...................... 2,724,245
Provision for income taxes...................... 382,374
------------
Net income...................................... $ 2,341,871
===========
The accompanying notes are an integral part of this combined statement.
13
<PAGE>
ANAGRAM INTERNATIONAL, INC. AND SUBSIDIARIES,
ANAGRAM ESPANA S.L. AND ANAGRAM INTERNATIONAL JAPAN, LTD.
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Additional Cumulative
Common Paid-In Translation Retained
Stocks Capital Adjustment Earnings Total
------ ------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996........... $121,801 $2,257,329 $148,920 $3,176,659 $5,704,709
Net income........................... 2,341,871 2,341,871
Foreign currency translation
adjustment........................ (160,564) (160,564)
Conversion of subordinated debt
to shareholders' equity........... 1,029,587 1,029,587
Dividends............................ (1,060,980) (1,060,980)
--------- ---------- -------- ---------- -----------
Balance, December 31, 1997........... $121,801 $3,286,916 $(11,644) $4,457,550 $7,854,623
======== ========== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this combined statement.
14
<PAGE>
ANAGRAM INTERNATIONAL, INC. AND SUBSIDIARIES,
ANAGRAM ESPANA S.L. AND ANAGRAM INTERNATION JAPAN, LTD.
COMBINED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
Cash flows from operating activities:
Net income....................................................... $2,341,871
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................ 3,354,960
Gain on sale of property..................................... (5,163)
Change in operating items:
Trade accounts and note receivable........................ (826,625)
Inventories............................................... 384,464
Prepaid expenses and other current assets................. (634,528)
Notes receivable from customers........................... 233,152
Accounts payable and accrued expenses..................... 1,591,919
----------
Net cash provided by operating activities............... 6,440,050
Cash flows from investing activities:
Purchases of property, plant and equipment, net.................. (1,261,026)
Cash flows from financing activities:
Payments on bank line of credit, net............................. (3,250,000)
Proceeds from subordinated notes payable to related parties...... 350,949
Additional long-term borrowings.................................. 5,400,000
Repayments of long-term borrowings............................... (3,041,692)
Dividends paid................................................... (3,969,065)
----------
Net cash used in financing activities................... (4,509,808)
Effects of foreign currencies on cash............................ (160,564)
----------
Net increase in cash............................................. 508,652
Cash and cash equivalents, beginning of year..................... 209,987
----------
Cash and cash equivalents, end of year........................... $ 718,639
==========
Noncash transactions:
Conversion of subordinated debt to shareholders' equity.......... $1,029,587
Noncompete agreement funded by debt.............................. 470,654
Supplemental disclosures of cash flow information:
Cash paid for interest........................................... $1,722,806
Cash paid for income taxes....................................... 91,641
The accompanying notes are an integral part of this combined statement.
15
<PAGE>
ANAGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
ANAGRAM ESPANA S.L. AND ANAGRAM INTERNATIONAL JAPAN, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997
Note 1 - Nature of Business and Summary of Significant Accounting Policies
Business
Anagram International, Inc. and Subsidiaries, Anagram Espana S.L. and Anagram
International Japan, Ltd., collectively referred to herein as the Companies, are
engaged in the production and worldwide sale of balloons and other products made
of synthetic materials. The Companies sell their products to master distributors
and mass merchants for resale to novelty, gift and industrial markets.
Sale of the Companies
On September 17, 1998, the Companies were sold to Amscan Holdings, Inc. pursuant
to a stock purchase agreement dated August 6, 1998.
Principles of Combination
The accompanying combined financial statements include the consolidated accounts
of Anagram International, Inc., its subsidiaries and its affiliates described
above. The financial statements are presented on a combined basis as a result of
the common ownership of the Companies. Significant intercompany transactions and
accounts have been eliminated in the combination. The capital accounts of the
Companies include the following:
Shares Authorized Organizational Par Shares Issued and
Form Value Outstanding
<TABLE>
<CAPTION>
Shares
Organizational Par Shares Issued and
Form Value Authorized Outstanding
---- ----- ---------- -----------
<S> <C> <C> <C>
Anagram International, Inc. and Subsidiaries S Corporation $1.00 25,000 11,094
Anagram Espana S.L. C Corporation 1,000 peseta 2,000 2,000
Anagram International Japan, Ltd. C Corporation 50,000 yen 200 200
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Ultimate results could differ from those estimates.
Revenue Recognition
Revenues from product sales are recognized at the time merchandise is shipped.
Cash and Cash Equivalents
16
<PAGE>
The Companies consider all highly liquid instruments with original maturities of
ninety days or less to be cash equivalents.
Inventories
Inventories consisted of the following as of December 31, 1997:
Raw materials................ $1,136,680
Work in process.............. 2,237,115
Finished goods............... 4,471,645
----------
$7,845,440
==========
Inventories are valued at the lower of first-in, first-out cost or market, and
include materials, labor and manufacturing overhead costs.
Long-Term Notes Receivable From Customers
The long-term notes receivable from customers are unsecured and bear interest at
10%. The notes are due upon demand, although the Companies do not anticipate
full payment in 1998. Based upon expected repayment terms, the entire
outstanding balance of these notes has been classified as long-term in the
accompanying combined balance sheet.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Additions and improvements
which extend the life of the assets are capitalized, while maintenance and
repair expenditures are charged to operations as incurred. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets. Property, plant and equipment and corresponding useful lives at December
31, 1997 were as follows:
Useful
Lives
-----
Land.......................................... $ 1,358,579 -
Buildings..................................... 4,609,321 20
Production equipment.......................... 16,897,937 3-10
Office furniture, fixtures and equipment...... 6,423,752 3-5
-----------
29,289,589
Less- Accumulated depreciation................ (14,495,123)
-----------
Property, plant and equipment, net...... $14,794,466
===========
Other Assets
Other assets consist primarily of a noncompete agreement with a former
officer/shareholder. The original settlement was $600,000, with a present value
of $470,654, which is amortized ratably over the five-year period of the
noncompete agreement.
17
<PAGE>
Fair Value of Financial Instruments
As of December 31, 1997, the carrying amounts of the Companies' debt
approximated fair value as the interest rates on most of the debt instruments
fluctuate with changes in the market. The long-term notes receivables have been
discounted to approximate fair market value.
New Accounting Pronouncements
The Companies will adopt Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," in 1998. SFAS No. 130 establishes
standards for reporting and displaying comprehensive income and its components
in financial statements; however, the adoption of this statement will have no
impact on the Companies' net income or equity position.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP No. 98-1 is effective for
fiscal years beginning after December 15, 1998, and defines which costs of
computer software developed or obtained for internal use are capital and which
costs are expenses. The effect of adoption is not expected to have a material
impact on the Companies' financial position or results of operations.
Note 2 - Debt
Line of Credit
The Companies have a line-of-credit agreement with a bank expiring in June 1999
providing for borrowings up to $4,000,000 nonseasonally, and seasonally adjusted
up to $6,500,000, based upon qualifying asset balances. The borrowing limit as
of December 31, 1997 was $6,500,000. Interest is payable monthly at the bank's
reference rate, 8.5% at December 31, 1997. Borrowings are collateralized by
accounts receivable, inventories, equipment and a personal guarantee of the
majority shareholder along with a $3,000,000 life insurance policy on that
shareholder. There were no borrowings outstanding under this agreement at
December 31, 1997.
18
<PAGE>
Long-Term Debt
Long-term debt, substantially all of which is personally guaranteed by the
majority shareholder, consisted of the following at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Term notes payable to bank, interest at 0.75% over prime (9.25% at December 31, 1997)
and other notes at 9.1%, payable in monthly installments of $139,652 to December 31,
2001; collateralized by accounts receivable, inventories, equipment and a $3,000,000
life insurance policy on a shareholder......................................................... $ 6,858,175
Mortgage note payable to financial institution, interest at 8.55%, payable in monthly
installments of $28,993 through April 1, 2017; collateralized by real property................. 3,252,401
Note payable to bank, interest at 8.57%, payable in monthly installments of $35,715,
including interest, due in December 2002; collateralized by certain equipment.................. 2,142,840
Mortgage note payable, interest at 8.12%, payable in monthly installments of $6,644,
including interest, due June 1, 2012; collateralized by real property.......................... 642,770
Capital leases with various banks, interest ranging from 7.42% to 9.86%, varying
monthly installments through April 1, 2001; collateralized by equipment....................... 2,167,648
Note payable to former officer/shareholder related to noncompete agreement,
payable in monthly principal and interest installments of $10,000 through
March 1, 2002.................................................................................. 414,092
Note payable to former officer/shareholder, interest at 1% over prime
(9.5% at December 31, 1997), interest payable monthly, with principal due on
demand......................................................................................... 98,000
------------
Total debt................................................................................... 15,575,926
Less- Current maturities..................................................................... (3,229,412)
------------
Total long-term debt......................................................................... $12,346,514
============
</TABLE>
On February 28, 1997, portions of the Companies' debt facilities were
refinanced. Under terms of the various debt agreements, the Companies must
maintain minimum levels of net worth and maximum debt-to-equity ratios and limit
the payment of dividends, as defined, among other covenants. As of December 31,
1997, the Companies were in compliance with these covenants.
19
<PAGE>
Subordinated Notes to Related Parties
Subordinated notes to related parties consisted of the following at December 31,
1997:
Subordinated note payable to former shareholder, interest at 1%
over prime (9.5% at December 31, 1997), interest payable
monthly, with principal due January 1, 1999......................$1,002,000
Subordinated notes payable to shareholders, interest at the
prime rate (8.5% at December 31, 1997), with principal due
January 1, 1999.................................................. 409,109
Subordinated note payable to related party, denominated in yen,
interest at 2%, converted to shareholders' equity subsequent
to year-end...................................................... 1,189,519
----------
Total subordinated notes to related parties.......................... 2,600,628
Less- Current maturities............................................. -
----------
Total long-term subordinated notes to related parties................ $2,600,628
==========
Aggregate maturities of long-term debt are as follows as of December 31, 1997:
Nonsubordinated Subordinated
1998..................... $ 3,229,412 $ -
1999..................... 3,040,427 2,600,628
2000..................... 2,744,994 -
2001..................... 2,410,208 -
2002..................... 813,903 -
Thereafter............... 3,336 -
------------ ----------
$15,575,926 $2,600,628
=========== ==========
Note 3 - Income Taxes
Anagram International, Inc. (Anagram) has elected to be treated as an S
corporation for federal and state income tax purposes and, accordingly, income
is taxed in the individual income tax returns of its shareholders. Anagram's
subsidiaries, Anagram Espana, S.L. and Anagram International Japan, Ltd., are
subject to tax at the corporate level in the foreign countries within which they
operate.
Anagram reports certain income and expense items for income tax purposes on a
basis different from that reflected in the financial statements. Tax liabilities
relating to the reversal of temporary differences in future years will be the
responsibility of the shareholders unless the S corporation election is
terminated, at which time deferred income taxes applicable to such temporary
differences would be recorded by Anagram.
The tax provision reported in the statement of operations is due to taxes levied
by foreign taxing authorities on certain foreign subsidiaries of Anagram.
Anagram Espana, S.L. and Anagram International Japan, Ltd. have net operating
loss carryovers of approximately $1,100,000 and $2,300,000, respectively. A
valuation allowance has been established to fully reserve the deferred tax
assets resulting from the carryovers.
20
<PAGE>
Note 4 - Commitments and Contingencies
Royalty Agreements
The Companies have entered into royalty agreements with various licensers of
copyrighted and trademarked characters and designs used on the Companies'
balloons which require payments on sales of the Companies' products, or in some
cases, annual minimum payments.
Future minimum royalties were as follows at December 31, 1997:
1998............................... $2,497,403
1999............................... 1,113,231
2000............................... 151,242
2001............................... -
2002............................... 17,807
----------
$3,779,683
==========
Operating Leases
The Companies lease certain property and equipment under operating leases. The
minimum annual payments at December 31, 1997 were as follows:
Years Ending December 31:
1998............................... $ 798,137
1999............................... 689,104
2000............................... 418,220
2001............................... 302,464
2002............................... 214,509
Thereafter......................... 961,271
----------
$3,383,705
==========
Litigation
The Companies are a party to various ongoing legal proceedings incidental to
their business. In the opinion of management, the ultimate resolution of these
matters will not have a material adverse impact on the Companies' results of
operations or financial position.
Note 5 - Self-Sealing Valve Agreements
During 1990, the Companies were granted a patent on its self-sealing valve. The
Companies have entered into several royalty-bearing licensing and/or supply
agreements for the term of the patent with other manufacturers, permitting them
to purchase or manufacture and use this valve in their products. Under the terms
of these agreements, the Companies sell the patented valves along with related
manufacturing technology. The terms of these agreements are five years and
provide for annual renewals thereafter. Royalties and sales reported in the
21
<PAGE>
accompanying combined statement of operations resulting from these agreements
were $914,000 in 1997.
Note 6 - Profit-Sharing Plan
Anagram International, Inc. (the "Company") has a profit-sharing plan covering
all eligible employees, as defined by the plan. The Company, at the discretion
of the board of directors, may elect to make discretionary contributions. Total
contributions made by the Company to the plan were approximately $622,000 in
1997.
Note 7 - Related Party Transactions
Commission Arrangements
The Companies have entered into a commission arrangement with Anagram Exports,
Inc. (Exports), an entity owned by the shareholders of the Companies, for sales
outside the United States. The net commissions to Exports were $528,000 in 1997
and are included in general and administrative expenses in the accompanying
combined statement of operations.
Subordinated Notes to Related Parties
As described in Note 2, the Companies have subordinated long-term notes payable
to related parties and former shareholders. Total interest payments to these
parties totaled $172,878 for 1997.
Debt Guarantees
As described in Note 2, substantially all of the Companies' nonsubordinated
long-term borrowings are personally guaranteed by the majority shareholder of
the Companies.
22
<PAGE>
ANAGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
ANAGRAM ESPANA S.L. AND ANAGRAM INTERNATIONAL JAPAN, LTD.
COMBINED BALANCE SHEET
June 30, 1998
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 91,429
Trade accounts receivable, net of allowances ................ 8,116,563
Inventories ................................................. 9,237,097
Prepaid expenses and other current assets.................... 3,242,228
-------------
Total current assets...................... 20,687,317
Long term notes receivable from customers, net.................. 429,163
Property, plant and equipment, net.............................. 13,896,226
Other assets.................................................... 448,541
-------------
$35,461,247
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt......................... $3,186,801
Accounts payable .......................................... 3,167,415
Accrued expenses .......................................... 2,241,260
Accrued royalties .......................................... 1,991,211
Accrued compensation and benefits............................ 1,376,564
------------
Total current liabilities................. 11,963,251
Long-term debt, net of current maturities....................... 10,814,344
Subordinated notes to related parties........................... 2,503,528
Other long-term liabilities..................................... 67,791
Bank line of credit .......................................... 1,725,000
------------
Total liabilities......................... 27,073,914
Commitments and contingencies
Shareholders' equity:
Common stocks .......................................... 121,801
Additional paid-in capital................................... 3,286,915
Accumulated other comprehensive income....................... 196,460
Retained earnings .......................................... 4,782,157
------------
Total shareholders' equity................ 8,387,333
------------
$35,461,247
============
The accompanying notes are an integral part of this combined statement.
23
<PAGE>
ANAGRAM INTERNATIONAL, INC. AND SUBSIDIARIES,
ANAGRAM ESPANA S.L. AND ANAGRAM INTERNATIONAL JAPAN, LTD.
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
Net sales ........................... $31,945,928 $29,884,013
Cost of sales ...................... 17,866,733 17,139,205
------------ ------------
Gross margin....................... 14,079,195 12,744,808
Operating expenses:
Selling expenses................... 4,849,448 4,393,891
Art and development costs.......... 2,890,637 2,777,299
General and administrative
expenses.................... 4,662,576 4,308,540
------------- -----------
Total operating expenses........... 12,402,661 11,479,730
------------- -----------
Income from operations............. 1,676,534 1,265,078
Non-operating expenses:
Interest expense................... 773,707 831,275
Other expense, net................. 35,180 156,008
------------- -----------
Total non-operating expenses....... 808,887 987,283
------------- -----------
Income before income taxes......... 867,647 277,795
Provision for income taxes............ 178,765 16,439
------------- -----------
Net income......................... $ 688,882 $ 261,356
============ ===========
The accompanying notes are an integral part of this combined statement.
24
<PAGE>
ANAGRAM INTERNATIONAL, INC. AND SUBSIDIARIES,
ANAGRAM ESPANA S.L. AND ANAGRAM INTERNATIONAL JAPAN, LTD.
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................... $688,882 $261,356
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................................... 1,615,730 1,735,666
Loss on sale of property............................................... 13,500 8,576
Change on operating items:
Trade accounts and note receivable................................... 1,452,658 1,677,801
Inventories.......................................................... (1,391,657) 242,567
Prepaid expenses and other current assets............................ (704,795) (291,236)
Accounts payable and accrued expenses................................ (646,544) (802,428)
----------- ---------
Net cash provided by operating activities......................... 1,027,774 2,832,302
Cash flows from investing activities:
Purchases of property, plant and equipment, net.......................... (681,556) (558,473)
Cash flows from financing activities:
Proceeds (payments) on bank line of credit, net.......................... 1,725,000 (3,250,000)
Proceeds (payments) from subordinated notes to related parties........... 11,983 (21,332)
Additional long-term borrowings.......................................... - 5,400,000
Repayment of long-term borrowings........................................ (1,574,781) (1,477,915)
Dividends paid........................................................... (1,239,503) (3,821,547)
---------- ----------
Net cash used in financing activities............................. (1,077,301) (3,170,794)
Effects of foreign currencies on cash........................................... 03,873 (30,121)
----------- ----------
Net decrease in cash............................................................ (627,210) (927,086)
Cash and cash equivalents, beginning of period.................................. 718,639 209,987
------------ -----------
Cash and cash equivalents, end of period........................................ $ 91,429 $ (717,099)
============ ==========
Noncash transactions:
Noncompete agreement funded by debt.............................................$ - $470,654
Supplemental disclosures of cash flow information:
Cash paid for interest.......................................................... $ 777,108 $ 814,653
Cash paid for income taxes...................................................... - 91,641
</TABLE>
The accompanying notes are an integral part of this combined statement.
25
<PAGE>
ANAGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
ANAGRAM ESPANA S.L. AND ANAGRAM INTERNATIONAL JAPAN, LTD.
June 30, 1998
Notes to Combined Financial Statements
(Unaudited)
Note 1 - Nature of Business and Summary of Significant Accounting Policies
Business
Anagram International, Inc. and Subsidiaries, Anagram Espana S.L. and Anagram
International Japan, Ltd., collectively referred to herein as the Companies, are
engaged in the production and worldwide sale of balloons and other products made
of synthetic materials. The Companies sell their products to master distributors
and mass merchants for resale to novelty, gift and industrial markets.
Sale of the Companies
On September 17, 1998, the Companies were sold to Amscan Holdings, Inc. pursuant
to a stock purchase agreement dated August 6, 1998.
Principles of Combination
The accompanying combined financial statements include the consolidated accounts
of Anagram International, Inc., its subsidiaries and its affiliates described
above. The financial statements are presented on a combined basis as a result of
the common ownership of the Companies. Significant intercompany transactions and
accounts have been eliminated in the combination. The capital accounts of the
Companies include the following:
<TABLE>
<CAPTION>
Shares Issued
Organizational Shares and
Form Par Value Authorized Outstanding
---- --------- ---------- -----------
<S> <C> <C> <C>
Anagram International, Inc.
and Subsidiaries S Corporation $1.00 25,000 11,094
Anagram Espana S.L. C Corporation 1,000 peseta 2,000 2,000
Anagram International
Japan, Ltd. C Corporation 50,000 yen 200 200
</TABLE>
Note 2 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results
26
<PAGE>
for the six-month period ended June 30, 1998 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998. The
results of operations may be affected by seasonal factors such as the timing of
holidays or industry factors that may be specific to a particular period, such
as movement in a general level of raw material costs. For further information,
see the combined financial statements and footnotes thereto for the year ended
December 31, 1997 included elsewhere in this filing.
Note 3 - Inventories
Inventories at June 30, 1998 consisted of the following:
Finished goods........................... $5,982,405
Raw materials............................ 1,181,019
Work-in-process.......................... 2,713,079
----------
9,876,503
Reserves................................. (639,406)
----------
Total.................................... $9,237,097
==========
Inventories are valued at the lower of cost, determined on a first in-first out
basis, or market.
Note 4 - Comprehensive Income
As of January 1, 1998, the Companies adopted Financial Accounting Standards
("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130 established new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this statement had no impact on the Companies net
income or shareholders' equity. SFAS No. 130 requires the Companies foreign
currency translation adjustment, which prior to adoption was reported separately
in shareholders' equity to be included in other comprehensive income.
Comprehensive income consisted of the following:
Six Months Ended
----------------
June 30,
--------
1998 1997
---- ----
Net income............................ $688,882 $261,356
Net change in foreign currency
translation adjustment............. 208,104 (42,990)
------- --------
Comprehensive income.................. $896,986 $218,366
======== ========
Accumulated other comprehensive income at June 30, 1998 consisted solely of the
Companies' foreign currency translation adjustment.
27
<PAGE>
c) Exhibits
Exhibit
-------
Number Description
------ -----------
23 Consent of Arthur Andersen, LLP
28
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMSCAN HOLDINGS, INC.
By: /s/ Michael A. Correale
---------------------------
Michael A. Correale
Controller
(on behalf of the registrant and
as principal accounting officer)
Date: December 1, 1998
29
<PAGE>
EXHIBIT INDEX
Exhibit
-------
Number Description
------ -----------
23 Consent of Arthur Andersen, LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 8-K/A, into the Company's previously filed
Registration Statement File No. 333-45457.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
December 1, 1998
